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| | | | | | | | | | | | | | Share Price: | MYR25.24 | Target Price: | MYR26.40 | Recommendation: | Hold | | |
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| | | Downstream division a star performer in 1Q | | 1QFY9/18 earnings are off to a decent start with core net profit meeting 30%/27% of our/consensus full-year earnings forecasts – within estimates. Downstream outperformed whereas upstream and property divisions underperformed. We maintain our earnings forecasts. Given muted FY18 earnings growth outlook, KLK remains a HOLD with an unchanged TP of MYR26.40 on 26x FY18 PER (5-year mean). | | |
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| | FYE Sep (MYR m) | FY16A | FY17A | FY18E | FY19E | Revenue | 16,505.8 | 21,004.0 | 20,743.7 | 22,092.0 | EBITDA | 1,805.8 | 2,157.1 | 2,072.0 | 2,236.9 | Core net profit | 824.5 | 1,063.8 | 1,080.1 | 1,194.2 | Core EPS (sen) | 77.2 | 99.9 | 101.4 | 112.1 | Core EPS growth (%) | 0.7 | 29.3 | 1.5 | 10.6 | Net DPS (sen) | 50.0 | 50.0 | 60.8 | 67.3 | Core P/E (x) | 32.7 | 25.3 | 24.9 | 22.5 | P/BV (x) | 2.6 | 2.3 | 2.2 | 2.2 | Net dividend yield (%) | 2.0 | 2.0 | 2.4 | 2.7 | ROAE (%) | 15.8 | 9.1 | 9.2 | 9.8 | ROAA (%) | 4.6 | 5.6 | 5.5 | 5.9 | EV/EBITDA (x) | 16.0 | 13.6 | 14.3 | 13.2 | Net debt/equity (%) | 22.5 | 19.3 | 15.1 | 12.5 |
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| | | | | | | | | | | | Share Price: | MYR1.51 | Target Price: | MYR1.86 | Recommendation: | Buy | | |
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| | | Stronger earnings recovery | | 4Q17 results were in line but we lower our FY18/19 earnings forecasts to factor in higher production costs; we also introduce our FY20 forecast. We expect stronger earnings recovery this year in view of positive demand from sustained economic growth, further anti-dumping measures and a favourable steel price outlook. All negatives have long been priced in and valuation remains compelling. Our new TP of MYR1.86 (-16sen) is based on unchanged 10.5x FY18 PER (5-year avg forward PER). | | |
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| | FYE Dec (MYR m) | FY16A | FY17A | FY18E | FY19E | Revenue | 1,035.2 | 1,323.3 | 1,286.4 | 1,368.8 | EBITDA | 106.4 | 105.1 | 110.9 | 122.4 | Core net profit | 68.5 | 59.8 | 65.5 | 74.2 | Core EPS (sen) | 18.6 | 16.2 | 17.7 | 20.1 | Core EPS growth (%) | 94.0 | (12.9) | 9.5 | 13.2 | Net DPS (sen) | 14.0 | 10.0 | 8.9 | 10.0 | Core P/E (x) | 8.1 | 9.3 | 8.5 | 7.5 | P/BV (x) | 0.7 | 0.7 | 0.7 | 0.6 | Net dividend yield (%) | 9.3 | 6.6 | 5.9 | 6.7 | ROAE (%) | 8.7 | 7.3 | 7.8 | 8.5 | ROAA (%) | 8.0 | 6.8 | 7.2 | 7.8 | EV/EBITDA (x) | 4.9 | 3.9 | 2.6 | 2.1 | Net debt/equity (%) | net cash | net cash | net cash | net cash |
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| | SECTOR RESEARCH | | | | | | Strong exports eased stockpile pressure
by Chee Ting Ong |
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| | | | | | The timely suspension of Malaysia's CPO export taxes for three months effective 8 Jan 2018 has yielded higher exports. Coupled with seasonally lower output, Jan 2018's stockpile has come off its recent peak. We anticipate even lower stockpiles in Feb-Mar 2018 which will be supportive of CPO prices in the near term. We maintain our NEUTRAL call on the sector with selected BUYs on IOI (trading), SOP, and BAL. | |
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| | MACRO RESEARCH | | | | | | FBMKLCI Index: Major Uptrend is Intact
by Nik Ihsan Raja Abdullah |
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| | | | | | FBMKLCI rose 10.35pts to 1,830.17 yesterday, buoyed by gains in Telekom, Axiata and Petronas Gas. Market breadth however was negative, with losers outpacing gainers by 484 to 453. A total of 1.80b shares worth MYR2.26b changed hands. Positive spill-over from overnight US markets could extend FBMKLCI's recent gain. More importantly, it should revive investors' appetite for small and mid-caps stocks. Notwithstanding that, expect trading to be choppy in this holiday-shortened week. | |
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| NEWS | | | Outside Malaysia:
U.S: Budget gap widens as revenue growth outpaced by spending. The U.S. fiscal gap increased by 11% YoY to USD175.7b between October and January, the Treasury Department said in a report. Outlays rose by 5% YoY to USD 1.3tr, while receipts increased by 4% YoY to USD1.1tr. The budget deficit widened the last fiscal year to the largest since 2013. The gap is expected to keep increasing as an aging population boosts spending on healthcare and retirement programs and from tax cuts enacted this year that are expected to cut revenue by up to USD 1.5tr over the next decade. White House budget director Mick Mulvaney said the budget deficit will increase this year, but could narrow over time with economic growth. (Source: Bloomberg)
U.S: Fed Survey shows Americans expect biggest pay hikes in years. Consumers said they expected to see the fastest wage growth in several years when polled in January, according to a monthly Federal Reserve Bank of New York survey. Consumers polled expected earnings to rise 2.73% in the coming year, the most since data collection began in 2013, according to results of the New York Fed's Survey of Consumer Expectations released. January was only the third month in the survey's 56-month history in which expected wage growth topped expected consumer price inflation, which fell slightly, to 2.71%. (Source: Bloomberg)
U.K: House prices recorded an annual drop for the first time in almost six years at the start of 2018, with London leading the slump. Values fell 0.4% YoY in January, according to a report published. Detailed data covering the fourth quarter of 2017 show London down 4.3% YoY -- the most since the depths of the recession in 2009. Comparing January to December, U.K. values rose 0.2%, the first month-on-month increase since September. That left the average at GBP301,477 (USD416,000). In London, the average is GBP589,553. (Source: Bloomberg)
China: Banks dished out a record amount of new loans in January as curbs on shadow lending swelled balance sheets amid a traditional new-year credit surge. New yuan loans stood at CNY2.9t, versus a projected CNY2.05t -- the most since records began in 1992. Aggregate financing stood at CNY3.06t (USD483b) in January versus an estimated CNY3.15t and up from CNY1.14t reported the prior month. Broad M2 money supply increased 8.6% YoY. The robust credit demand illustrates the challenges faced by China's leadership as they attempt to slow over-borrowing in the credit-hungry economy, which last year outstripped forecasts to post its first annual acceleration since 2010. Still, seasonal factors exaggerate the trend at the start of the year, and an ongoing clampdown on funding outside traditional bank loans may have diverted some business back to mainstream lenders. (Source: Bloomberg)
India: Retail inflation eased from the fastest pace in 17 months, offering some respite to policy makers and bond investors battling the fallout of Prime Minister Narendra Modi's expansionary budget. Consumer prices rose 5.07% YoY in January, the Statistics Ministry said. However, the central bank forecasts the pace could pick up to as fast as 5.6% YoY by September once the government begins spending for the year starting April 1. (Source: Bloomberg) | |
| | | | | Other News:
George Kent: Announces more heavy weights in a bid for KL HSR project. George Kent (Malaysia) which had initially said it would work with Siemens to bid for the Kuala Lumpur High Speed Rail project, today announced three more players in its consortium, namely Alstom, Ferrovie dello Stato Italiane and PORR for the AssetsCo tender. The companies will work to prepare a joint offer encompassing engineering, procurement and construction (EPC) and operations & maintenance (O&M). This partnership shall result in a powerful team combining European technology and project experience with the best local expertise. (Source: The Sun Daily)
Ajinomoto: To buy land in Tabung Haji development for MYR86.1m. Ajinomoto (Malaysia) proposes to purchase land in Techpark@Enstek Negeri Sembilan from Lembaga Tabung Haji and THP Enstek Development S/B for MYR86.1m cash, to build a new manufacturing facility. It signed a sale and purchase agreement with Tabung Haji and THP Enstek for the land which was valued at MYR41 a sq ft on Feb 6, 2018 by an independent registered valuer, Messrs Jordan Lee & Jaafar S/B. The purchase price inclusive of Goods and Services Tax (GST) is slightly lower that the valuation, which would have come up to MYR88.2m with GST. The property is currently overgrown with trees and bushes with undulating terrain. (Source: The Sun Daily)
Ranhill: Energy Commission issues conditional letter of award to Ranhill for Sabah power plant. The Energy Commission (ST) today issued a Conditional Letter of Award (CLOA) dated Feb 12, 2018 for the development of a 300MW combined cycle gas turbine power plant in Sandakan to the consortium consisting SM Hydro Energy S/B (SMHE), a unit of Ranhill Holdings. SMHE is currently evaluating the terms and conditions of the CLOA and Ranhill will make the necessary announcement to Bursa Malaysia as and when the decision to accept the award is made. (Source: The Sun Daily) | |
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